Carola Uva October 28, 2024October 29, 2024 The incorporation of Special Purpose Vehicles (“SPVs”) has gained importance in the financial hub of the UAE, specifically within the Abu Dhabi Global Market (“ADGM”) and the Dubai International Financial Centre (“DIFC”). Recent regulatory changes in both jurisdictions have been introduced to simplify the setup process of SPVs and to establish a stronger connection with the UAE/GCC Region. These changes include the introduction of specific requirements, such as the “nexus requirement”, which mandates the SPVs to demonstrate a tangible link to the UAE/GCC Region. This article will explore the key features of SPVs in both ADGM and DIFC, providing a general overview of the requirements for incorporating such entities, with a focus on the amendments introduced by the ADGM Companies Regulations (2020) and the DIFC Prescribed Companies Regulations (2024). SPVs in ADGM SPV’s incorporation in ADGM The incorporation of a SPV in ADGM is subject to specific requirements as outlined in the ADGM Commercial Licensing Regulations (Conditions of License and Branch Registration) Rules 2024. To establish a SPV, the applicant must submit an application to the Registrar evidencing the details of the proposed company, its structure, its legal form, and the controlled activities which will be carried on or from ADGM. The set-up process requires the applicant to demonstrate that the SPV aligns with ADGM’s objectives, possesses adequate capital, skills, and qualifications, and operates from appropriate premises. Furthermore, the SPV must meet the “nexus” requirement, showing a connection to the UAE, the GCC region, or ADGM (see infra). Once these conditions are met, the Registrar has the discretion to issue the license, enabling the SPV to operate within the ADGM framework. The “nexus” requirement for ADGM SPVs To satisfy the licensing requirements mentioned above, the applicant must also demonstrate that the proposed SPV has an appropriate connection or “nexus” with the ADGM, the UAE and/or the GCC Region (the “nexus requirement”). The circumstances satisfying the nexus requirement are explained in the Guidance Note for Special Purpose Vehicles, issued on March 2020 by ADGM. The purpose of the nexus requirement is to establish a tangible link between the SPV and the UAE/GCC Region, thus preventing the incorporation of shell companies. According to such Guidance, the “nexus” may be shown through evidence that: The SPV is owned or controlled by a UAE or GCC-based company, family/family office, or individual; The SPV holds assets located in the UAE or GCC; The SPV facilitates transactions connected to / providing benefit to the UAE; The SPV issues securities listed by the Financial Services Regulatory Authority (FSRA) or traded on a recognized platform in ADGM. By contrast, a SPV exclusively owned by a foreign individual or company that solely holds assets located outside the UAE/GCC Region, would not meet the nexus requirement. Meeting one of these criteria ensures the SPV is aligned with the ADGM’s regulatory framework, thus fulfilling the licensing requirements and facilitating the granting of the license at the Registrar’s discretion. Appointment of a Company Service Provider in ADGM Pursuant to ADGM Companies Regulations 2020 (as amended by Companies Regulations – Amendment No. 1 of 17 March 2021), a company conducting a business activity of being a special purpose vehicle (i.e. “non-exempt company”) must at all times have a Company Service Provider (Rule 296A), unless it meets specific exemptions. The requirement for ADGM SPVs to appoint a Company Service Provider (“CSP”) applies to all companies incorporated on or after the 12 July 2021. However, there are specific circumstances that exempt a SPV from the obligation to appoint a CSP. These exemptions applies to: (i) companies or entities exempted under the Commercial Licensing Regulations 2015 (Exemptions) Order 2020; (ii) authorized persons under the Financial Services and Markets Regulations 2015; (iii) entities licensed or regulated by the Central Bank of the UAE; (iv) companies whose shares are listed on regulated markets in the UAE, including those in ADGM; and (v) companies that have demonstrated to the Registrar that they have an adequate presence in the UAE. With reference to the exemption under (v), the criteria for evaluating the “adequate presence” in the UAE implies a valuation made by the Registrar of the company’s assets, turnover, and employees in the UAE; the company’s governance, policies, and procedures and any relevant rules made by the Board or guidance issued by the Registrar itself (Rule 296A subsections 3 and 4). SPVs in DIFC SPV’s incorporation in DIFC In DIFC, a SPV can be incorporated in the form of a “Prescribed Company” (“PC”), a type of corporate structure available in DIFC, commonly used as a holding company to isolate and protect assets and liabilities from financial and legal risks. This corporate vehicle is prescribed by specific regulations establishing a more flexible regime for incorporation and permitted purposes. The legal framework of Prescribed Companies in DIFC is set forth by the DIFC Prescribed Companies Regulations, as recently amended on 15 July 2024. To establish a SPV in DIFC, an application for incorporation must be submitted to the Registrar along with the required documentation. Then, if the conditions set forth in the regulation are met (including the nexus requirement, see infra), the Registrar will grant permission to incorporate the company, together with the license and its effective date. The “nexus” requirement for DIFC SPVs Similarly to ADGM, anyone wishing to incorporate a SPV in DIFC must demonstrate the existence of a link between the proposed SPV and the UAE/GCC Region. According to the recent amendments introduced by the DIFC Prescribed Companies Regulations (2024), a SPV can be incorporated in DIFC if one or more of the following conditions are met: The company must be controlled by one or more GCC Person, a DIFC registered person or authorized firms. The company must be set up in DIFC for the purpose of holding legal title or controlling GCC registrable assets. The company must be established for a specific qualifying purpose as defined in the regulation (i.e. aviation structure, crowdfunding structure, intellectual property structure, maritime structure or structured financing). The company must have a director who is an employee of a Corporate Service Provider (“CSP”) having a special arrangement with the DIFC Registrar. The expanded eligibility criteria set out above provides a greater flexibility for incorporating SPVs in DIFC, by allowing a wider range of applicants and purposes and thus making SPV a more accessible instrument for corporate structuring. Appointment of a Corporate Service Provider in DIFC Under the Prescribed Companies Regulations (2024), the appointment of a Corporate Service Provider (“CSP”) is crucial for the incorporation of a SPV in DIFC. Engaging a CSP allows the SPV to outsource critical functions, such as providing a registered address and ensuring compliance with regulatory requirements, including Anti-Money Laundering (AML) obligations and annual reporting. Pursuant to the new legislation, the Registrar may enter into arrangements with CSPs, allowing them to submit required documents, forms, and fees for incorporation directly to the Registrar. Additionally, CSPs are tasked with performing various assessments and checks, ensuring that applicants meet all AML requirements, comply with Ultimate Beneficial Ownership (UBO) regulations, and maintain proper accounting records. For further information or assistance with the incorporation of SPVs, please do not hesitate to reach us at info@fichtelegal.com or call +971 4 435 7577.
